Investors flee absolute return funds

The Targeted Absolute Return sector bore the brunt of investor nervousness in January as investors withdrew £665m from the asset class.

Data from the Investment Association, the trade body that represents UK asset managers, out today (March 7), showed the sector was the worst selling IA sector in the month.

In contrast, the £ Strategic Bond sector was the best-selling sector with net retail sales of £801m in the month.

Overall, funds under management remained stable at £1.2trn but net retail sales were down £859m on 2017 and institutional sales were down £60m.

Chris Cummings, chief executive of the Investment Association, said: "Dry January extended to the fund markets as savers remained cautious, heralding the fourth consecutive month of net retail outflows.

"The threat of a no-deal Brexit, Eurozone instability, and international trade tensions, combined to dampen investor appetite with savers looking towards Mixed Asset funds to spread their risk."

Francis Klonowski, an adviser at Klonowski and Co in Leeds, said he was no fan of absolute return funds and does not use them.

He said: "Even when they first started I was wary of them. They seemed to promise things they couldn’t do, like get a return in all market conditions.

"The way they achieve what they do is very complicated with a lot of instruments that are very complicated, and go a long way from the terminology that advisers are familiar with.

"It’s a fact of life that if you are in a stock market your pot will go down when the market goes down. That’s why you don’t have all your money in the stock market, you have some cash, and cash is a tried and tested method of offering downside protection."

Data from FE Analytics shows the average fund in the IA Total Return sector lost 2.2 per cent over the past year to March 7. Mr Klonowski said: "This shows the returns haven’t been very absolute."

The IA data also showed a continued wariness towards UK assets as £135m flowed out from the sectors in January.

The best selling equity market was Japan, which had net retail sales of £146m. A total of £134m was placed into North American equity funds while investors pulled £21m from Asia and £177m from global equity funds and Europe.

The best selling sector overall was IA Mixed Investment, which had net inflows of £367m.

Meanwhile tracker funds saw a net retail inflow of £641m giving them an overall share of industry funds under management of 15.7 per cent.

Ethical funds too experienced net retail inflows of £66m in January 2019giving them a 1.4 per cent share of industry funds under management.

Laura Suter, personal finance analyst at AJ Bell, said: "The epic outflows seen in December where stemmed slightly in January, but investors still pulled a net £859m from funds overall.

"Fund managers will be praying for an Isa season bounce to boost sales in the coming months, but with fears around the Brexit outcome and general nervousness in markets, they may prove disappointed.